Grayscale is calling for help as it attempts to get SEC approval for a spot Bitcoin ETF.
Last October, the New York-based asset managers announced it had filed to convert its existing Grayscale Bitcoin Trust (GBTC) to a spot ETF. This filing came hot off the heels of the SEC’s approval of the ProShares Bitcoin Futures ETF.
Commenting on this, the Global Head of ETFs at Grayscale, Dave LaValle, reasoned that if the SEC is at ease overseeing a BTC futures product, they should also be comfortable with an equivalent spot-based product.
“At Grayscale, we believe that if regulators are comfortable with ETFs that hold futures of a given asset, they should also be comfortable with ETFs that offer exposure to the spot price of that same asset.”
The difference between spot and futures comes down to the underlying asset. Real Bitcoin backs a spot-based ETF. In contrast, the futures-based ETF is backed by a derivative in Bitcoin futures contracts.
The price of Bitcoin futures contracts can differ from the current market price based on investors’ sentiment. This carries the risk of inaccurate pricing, whereas no such risk exists with a spot-based product.
As such, it’s arguable that a spot-based ETF is better for investors and, if approved, would provide a strong endorsement of digital assets.
What is the Grayscale Bitcoin Trust?
GBTC is a financial vehicle offering accredited investors a way to invest in Bitcoin via the stock market. Investors buy shares in the trust; in turn, the trust buys Bitcoin. As the BTC price rises and falls, so too does the price of GBTC shares.
GBTC has approximately $24.3 billion in assets under management and 692.4 million shares outstanding.
Its advantages include exposure to BTC without holding the asset, which is beneficial to those unwilling to deal with custody and safekeeping. As a regulated product, investors also have regulatory protection.
However, the downside to investing in GBTC is the high premium attached. The trust carries a 2% fee, and as mentioned by MorningStar, it sometimes fails to track the price of Bitcoin accurately. The upshot to this is investors may be better off investing in BTC directly.
“Both of these factors have led to large differences between the returns of the trust and the returns of Bitcoin itself.”
Participation matters
U.S ETF approval has become a war between providers and the SEC. Many firms have tried and failed to get permission since 2013.
Although the SEC greenlighted the ProShares Bitcoin Futures ETF in October 2021, a spot-based ETF has yet to be sanctioned in the U.S.
There could be many reasons for this. Firstly, it’s still unclear whether the current U.S administration is for or against digital assets. Also, there remain doubts over Bitcoin’s status as a bona fide asset.
In any case, as part of Grayscale’s filing process, the SEC opened a 240-day public consultation period on Tuesday. During this time, people can submit their comments on the matter.
Speaking to Bloomberg, Grayscale CEO Michael Sonnenshein said the SEC wants to hear from investors, and in an attempt to rally support, Sonnenshein said participation in public consultation matters.
Grayscale has set up a dedicated webpage detailing their campaign. It contains a link to contact the EC directly.
